2024 (2) TMI 1229 - AT - Income Tax

Revision u/s 263 - 56(2)(x)(c)(B) - FMV purchases exceeds the price of shares - Possibility of two views - PCIT observed that as per the provision of Section 56(2) (x)(c)(B) where a person received any previous year, any property other than immovable property the aggregate fair market value of such property has exceed the purchase consideration is liable to be included in the income of the assessee as income from other source HELD THAT - The option to adopt either NAV or DCF Method for valuing the shares has been given to an Assessee in the statute itself. When the A.O. has appreciated this option availed by the Assessee, his order cannot be construed as erroneous. From the above, it is observed that it is not a case wherein the Assessing Officer failed to conduct enquiry rather it is the case wherein the AO has conducted an elaborate enquiry and adopted one of the two views which was plausible view. The question would be as to whether in such circumstances the power u/s 263 of the Act would be invoked or not. The above said question is no longer res-integra and the said issue is well settled in several decisions. Further, the Hon ble Supreme Court in the case of Pr. CIT vs. Canara Bank Securities Ltd 2019 (10) TMI 1512 - SC ORDER dismissed the Department s appeal affirming the view taken by the Bombay High Court 2019 (2) TMI 2020 - BOMBAY HIGH COURT wherein the High Court held that the question whether the income should be taxed as business income or has arisen from other source was a debatable issue and the Assessing Officer had taken the plausible view that it was a business income after due enquiries and therefore not open for the Commissioner to take such an order in revision. . Therefore, following the ratio laid down in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT we are of the considered opinion that the impugned order of the Ld. PCIT is found to be erroneous, accordingly, order impugned of the Ld. PCIT is hereby quashed.Appeal filed by the Assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Erroneous and prejudicial nature of the assessment order.
3. Validity of the Principal Commissioner of Income Tax's (PCIT) findings.
4. Applicability of Section 56(2)(x)(c)(B) of the Income Tax Act.
5. Correctness of the Fair Market Value (FMV) determination.
6. Legality of setting aside the assessment for further inquiries.

Summary:

Issue 1: Jurisdiction under Section 263 of the Income Tax Act
The Assessee challenged the order dated 31.03.2023 under Section 263 of the Act by the Principal Commissioner of Income Tax (PCIT), claiming it was made without satisfying statutory preconditions and thus, without jurisdiction. The Tribunal found that the PCIT did not establish that the Assessing Officer's (AO) view was unsustainable or impossible, thereby questioning the jurisdiction under Section 263.

Issue 2: Erroneous and prejudicial nature of the assessment order
The Assessee argued that the AO had made all possible inquiries and accepted the Assessee's claims, and thus, the order could not be deemed erroneous and prejudicial merely because the PCIT had a different opinion. The Tribunal agreed, noting that the AO had conducted a thorough inquiry and adopted a plausible view.

Issue 3: Validity of the Principal Commissioner of Income Tax's (PCIT) findings
The Tribunal observed that the PCIT's findings were based on speculation and generalized observations without supporting evidence. The PCIT's order was set aside as it did not conform to legal standards.

Issue 4: Applicability of Section 56(2)(x)(c)(B) of the Income Tax Act
The PCIT contended that the Assessee should include an amount in its income under Section 56(2)(x)(c)(B) due to the difference between the FMV and the purchase price of shares. The Tribunal found that the AO had considered the valuation reports and other particulars, and thus, the AO's decision was not erroneous.

Issue 5: Correctness of the Fair Market Value (FMV) determination
The PCIT argued that the FMV of shares exceeded the purchase price, resulting in an additional income liability. The Tribunal held that the AO had the option to adopt either the NAV or DCF method for valuation, and since the AO's choice was plausible, it could not be deemed erroneous.

Issue 6: Legality of setting aside the assessment for further inquiries
The Tribunal noted that the AO had conducted extensive inquiries and adopted a plausible view. Citing the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, the Tribunal held that the AO's order was not unsustainable in law and thus, the PCIT's invocation of Section 263 was erroneous.

Conclusion:
The Tribunal quashed the PCIT's order under Section 263, finding it to be without jurisdiction and not in accordance with law. The Assessee's appeal was allowed, and the original assessment order was upheld.